Aquino’s VAT windfall, defense of oil firms’ ‘greed’ questioned


MANILA – Because of the almost weekly increase in oil prices, there is a growing consensus among some lawmakers, peoples’ organizations and various consumers’ advocates that the most immediate relief the Aquino government can give is to remove or reduce the Value-Added Tax (VAT) on oil products. Since last week, even the author of the VAT law, now Sen. Ralph Recto, has proposed to cut down the VAT being collected from oil products.

Multi-sectoral alliance Bagong Alyansang Makabayan (Bayan) said removing the VAT on oil will provide direct and immediate benefits to some 426,000 jeepney drivers, 581,000 tricycle drivers and 8.6 million households that use LPG for cooking. If President Aquino had started suspending the VAT on oil last week, for example, oil prices would have gone down by as much as P6 to P7 ($0.16) per liter of diesel and gasoline, respectively, and P110 ($2.56) per tank of LPG.

If the Aquino government is worried about losing government revenues, his government can amply cover for that by making good on his campaign promise of going after tax leaks which in 2010 were estimated to cost P150-billion ($3.5b), said Renato M. Reyes Jr., secretary general of BAYAN, at a legislators’ forum on the oil deregulation law last week. “If Aquino had gone after even half of those tax leaks, the government could have scrapped the VAT on oil products altogether,” said Reyes. But for Aquino, it is “easier to tax oil than go after tax evaders,” Reyes added.

As things stand today, the government has been getting an increasing windfall from the VAT on oil every year. According to Bayan, in 2008 the windfall was P58-billion ($1.4b); in 2011 it was placed at P90-billion ($2.1b), and this year it is likely higher because oil prices have increased nine times already in less than three months.

“VAT is not only regressive but oppressive,” the gathered lawmakers agreed.

Greed for profits

The government and oil companies justify the increase in pump prices by citing the changes in price of oil per barrel in the world market. But in different studies presented by multi-sectoral group Bayan, independent research group IBON and scientists’ group AGHAM, it was revealed that what the drivers and women have been saying all along is correct indeed. When oil prices go up in spot market, local oil companies increase prices more than they should. But when world oil prices go down, local oil companies bring down pump prices in trickles.

In physics, such a trend is called “hysteresis,” Ganni Tapang of AGHAM told the lawmakers and members of progressive organizations at a forum. It simply means, he said, that the way used to go up is not the same way retraced in going back.

In 14 years of the Oil Deregulation Law in the Philippines, oil prices have doubled more than two times, Tapang observed. And that conclusion is based only on data that are available.

The oil deregulation law has apparently aided the profiteering of oil firms, because transparency in oil pricing is not required. Despite the ongoing review, for example, the secrecy remains, said Sonny Africa, research head of independent think-tank Ibon. He noted that the government is “very selective” in allowing who can participate at the said review.

Africa said that one does not need to be a rocket scientist to see the overpricing happening. In simply comparing the spot prices in the world market and the local prices, one could already deduce that there is overpricing, “and that’s still an understatement,” he emphasized.

Given that local oil firms are subsidiaries of global transnational who control the production, distribution and pricing of oil, one cannot know the real cost of oil compared to the price at which it was supposedly bought, processed and then sold. A Wikileaks cable in July 2008 revealed a Saudi oil minister telling a US envoy that at least $40 from the price per barrel of oil is due to speculation.

As much as 80-percent of oil being sold in the Philippines are produced and/or distributed through a chain controlled by global oil monopolies, said Reyes of Bayan. He added that oil deregulation did not dismantle this oil cartel. (

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